By Carin Smaller

I. WHAT HAPPENED IN HONG KONG?
II. AGRICULTURE: the art of deception
III. SERVICES: another win for corporations
IV. NAMA: reducing development to a formula
V. DEVELOPMENT PACKAGE: a slap in the face
VI. THE WAY FORWARD: asking the questions
VII. DOCUMENTS

I. WHAT HAPPENED IN HONG KONG?

The 6th WTO Ministerial Conference, held in Hong Kong 13-18 December
2005, ended with an agreed Ministerial Declaration. WTO
Director-General, Pascal Lamy, and a number of WTO members celebrated
the moment as an important step towards the completion of the Doha Round
of trade negotiations. Expectations had steadily been ratcheted down
before the conference and there were few surprises in the final outcome.

Developing countries, despite their different interests, displayed
impressive solidarity and collaboration when they stood together at a
press conference during the Ministerial meeting and let the world know
that they wanted to work together to redress the inequalities in the
trading system. This collaboration of developing countries was
successful in resisting some demands from the developed countries and
certainly contributes to a gradual but evident shift in the power
balance that dominates trade negotiations. Developing countries were
able to tweak some elements of the Draft Ministerial Declaration that
was sent to Hong Kong to better reflect some of their offensive and
defensive interests. For example, the final Ministerial Declaration
contains an end date for agricultural export subsidies (finally!), calls
for further disciplines on food aid programs (that if accepted would
particularly affect the U.S., which provides roughly 60 percent of
global food aid resources), improved language on Special Products (SPs)
and the Special Safeguard Mechanism (SSM), and weakened somewhat the
attempt by a small number of countries to push the services negotiations
into a more one-size-fits all approach through amendments to annex C of
the declaration.

Despite these efforts, the end date for export subsidies is a meager
offer (it is consistent with the internal E.U. reforms anyway) and was
reached only after significant concessions were extracted from
developing countries in return. It is clear that the European Commission
(E.C.) and the U.S. will not give more in agriculture than what is
currently on offer (even though what is on offer will do nothing to
address the key problems in agriculture, such as dumping). In return,
the U.S. and the E.C. will continue to demand far-reaching market access
in agriculture, manufacturing products, natural resources and services.

The big picture is grim. This is a bad deal. The Ministerial Declaration
has lost all the development promises that were used to launch the Doha
Round in 2001. It continues to move the round further away from its
initial objectives, as did the July 2004 Framework.

Before the third WTO Ministerial was held in Seattle in 1999, developing
countries demanded that imbalances in the existing WTO agreements be
redressed to solve the problems that resulted from the implementation of
the Uruguay Round. These issues are referred to collectively as
"implementation issues." Developing countries also asked for stronger
special and differential treatment (SDT) measures and for the Agreement
on Agriculture (AoA) to be reformed to address structural inequities in
agricultural trade. When the Doha Round was launched, these concerns
were at the forefront.

Six years on, implementation issues have all but disappeared from the
agenda, special and differential treatment (SDT) has been reduced to
just five proposals for least-developed countries (LDCs) and the current
proposals to reform the AoA are set to deepen inequities. Instead of
putting development at the core of the Doha Round, development has been
reduced to a largely cosmetic "development package" for LDCs only. For
the rest of the developing countries, further market access-in
particular in agriculture-is said to be the core of the development
dimension. In return, developing countries have agreed to important
elements that shape the next steps of negotiations in services and
non-agricultural market access (NAMA) (see details below). Agreeing to a
Swiss formula in NAMA and accepting plurilateral negotiations in
services has put developing countries a step closer to far-reaching
liberalization commitments.

Farmers groups, trade unions, social movements, developmental and
environmental NGOs, consumer groups and many more - both in the South
and the North - continue to expose the negative consequences that will
result from the current proposals and call on their governments to break
out of the existing mould. Yet, an agreement was reached in Hong Kong.
Only Cuba and Venezuela expressed reservations (on Annex C on services,
described below). The Ministerial Declaration undermines the developing
country calls for a fairer trading system and sidelines many of their
proposals. In addition, the E.C. and the U.S. have clearly shown they
will make no commitments that influence the speed of their internal
reforms.

The Ministerial Declaration continues to close the policy space
developing countries need to determine their own development path, while
failing to end the current hypocrisy that allows developed countries
(particularly the U.S. and E.U.) to determine just what sectors to
liberalize, when and by how much. The opening of developing countries
economies as pushed by the developed countries, the WTO Secretariat, the
World Bank and the International Monetary Fund (IMF) are simply
incommensurate with the development needs of developing countries.
Rather than moving towards a pro-development outcome, the Ministerial
Declaration moves further away from reform of the structural
inequalities within the WTO itself and further curtails national policy
space for economic experiment and responsiveness to the need for job
creation and wealth creation and redistribution.

II. AGRICULTURE: the art of deception

WTO Members achieved little in agriculture in Hong Kong. Governments
were unable to put dates on when final modalities and schedules would be
completed. Instead, members set themselves a new deadline, April 30
2006, for agreement on some elements of the modalities. The only date
agreed in Hong Kong was for the elimination of export subsidies: 2013,
which is within a year of when the E.U. internal reform of the Common
Agricultural Policy was set to eliminate the subsidies anyway. The
export subsidy date is also contingent on quite a lot of hard
negotiating still to come before April 30. (see below, under Export
Competition, for further explanation)

DOMESTIC SUPPORT: Members in Hong Kong made no progress on any aspect of
domestic support disciplines. Three bands are proposed for reductions to
trade-distorting support measured in the so-called Amber Box. The G-20
had asked for four bands (which in practice would make the cuts more
biting), but Annex A already suggested that consensus was emerging for
only three bands, reflecting the E.U. position and that of the G-10,
which is made up of countries that also rely heavily on domestic support
in their agriculture. The language on an overall limit, or ceiling, for
trade-distorting domestic support is somewhat tighter than some of the
proposals that preceded Hong Kong. However, no detail for cuts to
domestic support programs is provided, including the de minimis levels,
the blue box, final targets for amber box spending or the level of cuts
to the amber box. All this means that it is still quite possible that
the new rules for agriculture in the Doha Round will require no new
reform to domestic support in the U.S. or the E.U.

EXPORT COMPETITION: The key issue in Hong Kong was the end date for
export subsidies. Although the overwhelming majority of WTO members were
pushing for an end date of 2010, the E.C. only offered 2013 and managed
to hold the rest of the WTO to ransom yet again on the issue of setting
a date. It is good that export subsidies are now set to expire, but time
and again the E.C. has used the issue to distract debate from more
urgent WTO business.

The E.C. was able to hedge its commitment with so-called "parallelism,"
which is a call for reductions in other forms of export support: export
credits, food aid and exporting state trading enterprises (STEs). These
disciplines are to be negotiated by April 30, 2006, when some kind of
Ministerial Conference is expected to reconvene (most probably as a
General Council meeting attended by some Ministers, of the type that
agreed the July Framework in 2004). The disciplines on export credits,
as proposed, would go some way to addressing the subsidy elements of the
existing U.S. programs-the U.S. is the main user of export credits. The
debate on exporting state-trading enterprises is in practice about the
Canadian Wheat Board, the AWB Ltd (formerly the Australian Wheat Board)
and the New Zealand dairy company, Fontera, which has its origins in a
state marketing agency for dairy farmers. The July Framework agreed to
discipline "future use of monopoly powers," language repeated in the
Hong Kong declaration. The STEs in question have already been reformed
under domestic law and by the Uruguay Round Agreement on Agriculture.
The proposal is that future problems be avoided rather than new
disciplines introduced. The more critical question of disciplines on the
market-distorting behavior of private monopolies and oligopolies remains
off the table despite the impact of their market power on agricultural
dumping.

The food aid disciplines proposed would likely force some changes in
U.S. food aid practices. The U.S. provides some 60 percent of global
food aid resources, but much of its food aid is wasted (as much as 50
percent in value terms) on unnecessary expenses incurred because of
programs designed to serve domestic interests rather than the interests
of recipients. Several U.S. food aid practices, particularly untargeted
monetization of food aid (where the food aid is sold in the open market)
can disrupt local markets, depress prices for local producers and
commercial importers, and interfere with market signals on demand and
supply. The Hong Kong text proposes a "safe box" for so-called bona fide
food aid going to emergencies (this food aid would not be subject to new
disciplines). This means some 60 percent of food aid would not be
affected by the proposed new disciplines. WTO members then claim in the
declaration that they will, "ensure elimination of commercial
displacement;" an impossibly high standard (all food aid, in practice,
causes some displacement; however some displacement is worth it, because
it saves lives). A better objective would be to insist on targeting to
ensure that food aid reaches its intended recipients and as few others
as possible. The disciplines as outlined in the Hong Kong declaration
will precipitate a big fight from the U.S. before the dust settles on an
agreement in April.

MARKET ACCESS: Before arriving in Hong Kong, WTO members had more or
less agreed on four bands for tariff reduction in agriculture. This was
confirmed in the Hong Kong text. The more bands, the greater the
likelihood of realizing real market access from the reductions; it is
harder to hide high tariffs behind lesser ones when the bands are more
narrowly defined. Developing country groupings such as the Africa,
Caribbean and Pacific (ACP) Group also supported four bands for tariff
reduction, but with higher percentage cuts and a lower maximum threshold
for developed countries. On sensitive products, the only proposal from
Hong Kong- which is already agreed, if not liked by all members - is
that the greater the deviation from the formula (still to be agreed) for
cuts within the four bands, the greater the tariff rate quota will have
to be (which makes it possible to force more imports than would
otherwise occur).

The text on Special Products and the Special Safeguard Mechanism has
improved somewhat. There is now agreement that developing countries can
self-designate the products, up to a still undetermined percentage of
all tariff lines, to be "guided by indicators based on the criteria of
food security, livelihood security and rural development". The issue of
criteria is likely to be a sticking point for WTO members (such as the
U.S.) that wish to aggressively liberalize Southern markets and
therefore will resist criteria that are permissive. The price trigger,
in addition to a volume trigger, for the SSM is also now accepted, a
victory for the developing country alliance on SP/SSM, also known as the
G-33.

COTTON: Little has been achieved on the cotton agenda. The declaration
calls for the elimination of export subsidies on cotton in developed
countries by 2006, yet the U.S. export subsidies have already been ruled
illegal under the WTO Cotton Panel ruling, and the U.S. government is
now obliged (and is trying in the face of strong Congressional
resistance) to comply. Governments repeat their commitment to reduce
domestic support for cotton more quickly and ambitiously than the
general formula (which is still to be agreed). Duty-free, quota-free
market access for cotton from LDCs is agreed. For the West African
cotton-exporting countries however, it is the domestic support that
results in cotton dumping, which depresses world prices, that is the
highest concern. Cotton producer associations from West Africa have
repeatedly said they do not export cotton to the U.S. Cotton producers
want U.S. exporters to stop dumping cotton, not to increase market
access into the U.S.

III. SERVICES: corporations win another round

Developed countries, in particular the E.C. and the U.S., were
successful in their attempt to get closer to their objective of
far-reaching market access commitments in services. Services sectors of
interest to developed countries include energy, retailing, water,
telecommunication, financial services and transport; all sectors that in
large part are crucial for agricultural and industrial production and
trade. Developed countries were unsatisfied with progress in services
negotiations (the GATS) and consequently have been trying, since early
2005, to include numerical targets and changes to the bilateral request
and offer process. A few developing countries such as India, Chile and
Mexico supported these proposals.

In Hong Kong, developing countries opposing this agenda were successful
in eliminating the reference to numerical targets. However, Annex C of
the Ministerial Declaration explicitly sets the stage for plurilateral
negotiations. This will allow groups of countries-known as "friends"-who
are interested in a particular sector (for example energy or retailing
services), to collectively table requests towards individual WTO
members. This will increase the power imbalance, already visible in the
bilateral request and offer process, since developing countries could
now face market access negotiations, for example, with ten or more
developed countries. The negotiating deadlines in the Ministerial
Declaration-that plurilateral requests shall be presented to WTO Members
by February 2006 and revised offers by the end of June-are not only
unrealistic and overly burdensome, but also further enhance the existing
power imbalance.

In addition, Annex C sets guidelines for the quality of offers to be
made and paragraph 5 calls on WTO members to develop disciplines on
domestic regulation. This creates a framework that will restrict
government powers to regulate, undermining government's ability to
implement regulations that respect and promote domestic policy
objectives above the interests of foreign investors and service
providers.

Overall, Annex C weakens the original GATS flexibilities, among others
the freedom for each country to ignore requests for services
liberalization. The Ministerial Declaration states that "countries
requested to enter plurilateral negotiations shall consider such
requests." Developed countries will use this language to push developing
countries into negotiations. Yet the declaration remains clear that no
such obligation exists and developing countries can continue reject the
plurilateral negotiations.

Besides changes that will be made to the GATS, it has to be remembered,
that the GATS is essentially an investment agreement. Deregulating
services sectors under the GATS puts domestic laws and regulation under
the scrutiny of the WTO and severely reduces the ability of countries to
regulate their services sector. The U.S.-Barbados gambling case
demonstrates this issue.

Moreover, services liberalization, especially in developing countries,
has rarely materialized the desired impacts for development. For
example, access to rural credit for farmers, or access to health care,
education, water or transportation, particularly for remote areas, has
in many cases worsened with liberalization. Private service providers,
foreign or local, often only offer better quality services to consumers
who can pay. The more government tries to insist on meeting the needs of
all citizens or users of a service, the less likely the private sector
is to invest. Making such liberalization a part of WTO rules means that
a commitment to services liberalization will be extremely difficult to
rescind if experience shows that privatization and foreign investment
are having undesirable effects.

IV. NAMA: reducing development to a formula

The Ministerial Declaration agrees on a mandate to further liberalize
trade in manufactured goods and natural resources, known as the
non-agricultural market access (NAMA) negotiations. The NAMA framework
is contentious and plagued with disagreement and divisions. Developing
countries, particularly the African and Caribbean Groups, have rejected
the text for years and yet the same details keep reappearing and are
aggressively pushed; most often by developed countries. The Ministerial
Declaration continues to promote the contentious NAMA framework. The
elements adopted in the Ministerial Declaration reaffirm that WTO
Members are unduly curtailing countries' rights to decide how to
structure and set tariffs on manufactured goods and natural resources.

The Ministerial Declaration adopts a Swiss formula to cut tariffs in
manufactured goods and natural resources. This is the most drastic way
to cut tariffs and was rejected as an approach in the agriculture
negotiations. The Swiss formula is designed principally to make steeper
cuts on higher tariffs, so as to bring all the final tariffs closer to
the same level. The approach prevents governments from using tariffs as
a tool to protect chosen industries or natural resources-a tool used by
every developed country in its past, and by most until the present day.
The extent of commitment will depend on negotiations on the coefficients
(the number that will be applied to the formula), which will determine
the extent of the tariff cut.

The Ministerial Declaration also adopts a drastic approach to binding
and reducing those tariffs that have not yet been bound. While binding
tariffs can be useful because it provides a degree of transparency and
reliability for exporters it ultimately gives export interests priority
over others such as securing jobs or the environement. Countries that
already have low tariffs as a result of pressure from bilateral or
multilateral donors will lose even further the possibility to raise
tariffs if they want to build up an industry or merely to protect jobs
at home in sectors that might not aim to compete at the global level.
Binding tariffs in the manner specified in the Ministerial Declaration
is a major concession from developing countries. Developing countries
will be deprived of an important tool to implement industrial policies
and a source of revenue they badly need for public investment. It will
be workers in the South and also in the North who will be the losers if
the proposed liberalization of manufacturing goes through.

The Ministerial Declaration also recognizes that some members,
predominantly developed country Members, are pursuing negotiations on
different sectors with the objective of complete tariff elimination. The
sectors include, forests, fish, electronics, chemicals, and raw
materials. To date, sectoral negotiations have taken place outside the
NAMA negotiations. They completely lack transparency and exclude the
majority of the membership, many of who reject the inclusion of such
initiatives in the negotiations. Yet, the Ministerial Declaration
legitimizes the sectoral negotiations and accepts them as a fait
accompli. This is unacceptable and adds fuel to an already blazing fire.

V. DEVELOPMENT PACKAGE: a slap in the face

The development package agreed in Hong Kong consists in a partial offer
from developed countries, and those developing countries "in a position
to do so," to provide duty-free and quota-free market access for LDC
exports (the three percent of tariff lines excluded will allow rich
countries to continue to protect much of what is already protected from
poor country exporters). Also included in the package is an ambiguous
statement from the U.S. about addressing cotton subsidies ahead of the
wider agriculture commitments (something the U.S. Trade Representative
has no political support for at home). Finally, Aid for Trade is
promised, which mostly repackages already promised aid money to support
trade-related capacity building initiatives.

The development package is insulting for several reasons. First,
developing countries want meaningful reforms to trade rules to address
the profound inequities in the existing global trade system-not a meager
aid package. Sadly, this package was used as a major distraction in Hong
Kong, while proposals in the interest of African, Caribbean and Pacific
country members were ignored (a number of ACP countries are not LDCs,
and so were excluded from the development package in any event). As a
parliamentarian from the East African Community put it, "Aid has not
been helpful to us in Africa. It has been misused and abused to put all
kinds of conditionalities on us. And it certainly does not belong in
the WTO. We want a development outcome out of the trade agenda."

Second, many civil society organizations have already exposed that there
is not much new money available and that most is in the form of loans,
which would further indebt countries. Third, while aid is not without
merit, it is not a substitute for strong multilateral trade rules that
prevent dumping (the sale of products at below the cost of production
prices) and protect countries' right to design domestic policies
according to their people's needs, whilst ensuring they do not harm
other countries. The money being pledged from developed countries would
be better spent assessing the impacts of trade liberalization and its
ability to create jobs, foster industrial and agricultural development,
to end dumping, and to redistribute wealth from developed to developing
countries. Fourth, the need for a meaningful development round extends
far beyond LDCs - for instance, among the most vulnerable economies in
the world trading system are the islands of the Caribbean, only one of
which is an LDC (Haiti), and both India and Brazil, despite being a
large country, faces serious challenges in addressing poverty too.

VI. THE WAY FORWARD: asking the questions

The outcome on the table raises several questions. Why are we moving
further away from the objective of a Development Round? Why did
developing countries agree to this text? Why do governments continue to
craft trade rules only in the interests of exporters? Why do governments
accept trade deals that do not reflect the interests of their people?
The answers are complex and varied and require further discussion. Below
are some initial reflections.

Part of the problem lies in the fact that the most powerful WTO members,
the WTO secretariat, the World Bank and the IMF, all continue to
conflate trade liberalization with trade policy, insisting that only
deeper liberalization can benefit countries. Most WTO Members work under
this assumption and seek to carve out exemptions or flexibilities in
certain sensitive sectors when they negotiate. This leads to a situation
where developing countries often end up spending disproportionate
negotiating muscle on one or two issues. For example, the G-33 fought
hard for the gains they obtained on SPs and the SSM (although G-33
members were also active in other areas) and the ACP countries have had
to spend a lot of energy fighting for preferences, although they too
have a number of other concerns in the talks.

The fact that most developing countries got something small out of the
Ministerial meeting, either in the form of a development package, an end
date for export subsidies or improvements in SPs and the SSM, made it
extremely difficult to reject the deal, even when the other elements
where inimical to their interests. The process of seeking exemptions or
pursuing single issues, rather than breaking out of the existing trade
model, creates divisions among developing countries and allows the most
powerful countries to continue dominating the overall agenda.

Another possible explanation for developing countries agreeing to the
text is the fear that if there is no agreement at the WTO, developing
countries will face more pressure to join bilateral and regional trade
agreements where they are less able to resist the demands of the
developed countries. Other countries' bilateral and regional deals also
have an impact on third countries, of course, as trade can be displaced
away from the countries that are not part of the bilateral or regional
deal. There is of course some truth in these arguments but some
misnomers as well. First, the fact is that the number of bilateral and
regional trade agreements ratified has tremendously increased since the
establishment of the WTO. Second, bilateral and regional trade
agreements are used in addition to the WTO. When developed countries
don't get what they want at the WTO level-such as the Singapore Issues
or more stringent intellectual property rights-these are introduced into
bilateral or regional trade negotiations.

In addition, many trade matters including the question of agricultural
subsidies and dumping are firmly anchored in the WTO and cannot be dealt
with bilaterally or regionally. At the same time it becomes more
apparent that achieving meaningful reforms in agriculture are almost
impossible to achieve in the current WTO framework. Small achievements,
like the elimination of export subsidies, come at a very high price.

That negotiations are conducted as part of a single undertaking creates
further distractions from the development objective. For example, the
Ministerial Declaration calls for balance between market access in
agriculture and NAMA. To start, there is clearly no balance in the
Ministerial Declaration. There is no agreement on the formula for
reducing tariffs in agriculture and yet Members adopt a Swiss formula in
NAMA. But this is beside the point. The culture of trading one sector
for another that pervades WTO negotiations is simply inappropriate. A
country shouldn't have to trade off its industrial sector (or its
services sector) for its agriculture sector. Strong economic policies
are not built on trade-offs. A healthy mix and diversity across all the
sectors-agriculture, manufacturing and services-is essential to a
vibrant economy. A vibrant economy cannot be built up and maintained
without the possibility to protect it; something developed countries
know better than anybody else. Depriving developing countries of these
instruments, at a moment where they are clearly in most need of it,
exposes the hypocrisies and contradictions in the current system. It
reflects the utter disconnect between what happens at the WTO and the
true development needs of people.

The limits of the existing trade model are becoming apparent. Political
realities (no country with sovereign control of its economy and finances
is interested in a pure version of trade liberalization) and empirical
experience shows that trade liberalization as pushed by the most
powerful players does not achieve the desired results. Even the World
Bank has dramatically reduced its estimates of what gains can be
expected from trade liberalization. A closer look at some numbers show
that for some poor countries, tariff revenue represents 60 percent or
more of government revenue. Until this problem is addressed, simply
cutting tariffs will impoverish the government and leave fewer resources
to pay for development.

Concluding the Doha Round in order to save the multilateral trading
system or to ensure that nobody can be blamed for the failure seems a
disproportionate concern against the limited development outcomes and
the potential negative consequences that could result from continuing on
this path.

It is time to break out of the current mould and pave the way for an
alternative approach to crafting trade rules that will unite countries
in a positive way forward. The trade model currently promoted in the WTO
is in direct conflict with the trade rules needed to promote
development, increase employment and reduce poverty. Rather than
continuing the promotion of a model that does not deliver and that is
increasingly rejected by people both in the South and the North,
governments need to start crafting international trade rules that take
on board concerns of all stakeholders, that don't trade-off one sector
for another and that can create the desired environment for sound
development policies.

Achieving a change of this magnitude may require new approaches to the
ones currently in operation. Alliances among developing countries are
vital and have been successful in changing the power dynamic in the
negotiations, but these alliances may not be sufficient to change the
nature of the current agreement or the existing trade model.

Visionary leadership is needed to build a more just and sustainable
trading system. Alternatives approaches exist and are widely promoted by
civil society groups and constituencies around the world. Convincing
governments to adopt these approaches will require a more concerted
effort at the national and regional level to build support for these
alternatives and for a new international trading system.

For all their many and important differences, a wide range of
constituencies, in developed and developing countries both, including
farmers, workers, consumers, environmentalists and development
organizations, voice similar concerns with the current trade model and
its impact on people's quality of life. The common thread in the
concerns raised by different constituencies is also reflected in the
wary and even hostile response governments receive from national
parliaments when trade agreements are brought forward for ratification.
The Doha Round survived in Hong Kong, but a number of governments should
be far from sanguine that national decision-makers are going to buy into
the vision, when so many organized constituencies are hostile to the
direction and breadth of the Doha Agenda.

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